Research On The Relationship Between Overconfidence Of The Biggest Shareholder And The Pledge Of Shareholdings

In recent years,with the basic layout of the split share reform,the rights and interests of listed companies become increasingly standardized,which makes the equity pledge and other operations become frequently.However,the equities in European and American countries are more dispersed thus there are few related theoretical analysis of equity pledge in these countries.The phenomenon of major shareholders appear in developing countries and the current equity pledge research is divided into market value management,timing motives and company governance.Overconfidence is the tendency of people to overestimate their own predictions of the information they obtained and the ability to control them.In the theory of behavioral finance,research shows that excessive self-confidence leads to excessive investment decision and debt financing tendency.There is no literature study through the perspective of overconfidence theory.Therefore,based on the previous studies on behavioral finance,this article adds excessive self-confidence into the the study of equity pledge.According to the previous studies,the equity pledge can be used in both personal investment opportunities and the firm's investment opportunities.Therefore,we use the improvement of the companies' performance to represent overconfidence of the largest shareholder.In this paper,we find that the overconfidence index of the major shareholder has a significant positive effect on whether to choose the ple dge of equity,the frequency of pledge and the pledge rate.Through the study of the risk in the pledged sample,we also find that the higher the degree of overconfidence,the greater the risk of the liquidation in the equity pledge the shareholder may suffer.This paper points out that in order to prevent the potent ial risk of equity pledging,the major shareholders should make an objective judgment on the future development of the company before making personal financing decisions.When the financial institutions make their pledge policies,they should pay more attention to company's performance evaluation.Futhermore,we suggest that the authorities should set off relevant rules and regulation to prevent systemic risk.